Wall Street still seemed hesitant to ‘buy the dip’ after another round of soft economic data and on fears the market might not be pricing in enough Fed hawkishness.
The bond market delivered another major move with the Treasury peaking just above the 3.00% level. The wasn’t ready to break the critical 4,000 level just yet, which could suggest stocks were ready for the typical consolidation that happens before a .
Fed
On Wednesday, the Fed will debate a 75-basis point rate hike, but most likely settle on delivering a half-point interest rate hike. Just as important is the Fed decision on the balance sheet runoff start, which could see it put a $40 billion monthly cap on Treasuries and $25 billion target on mortgage-back securities.
They might have a larger cap on balance sheet normalization and that could provide a hawkish surprise that could deliver the next round of strength.
The market priced in a strong start to the rate hiking cycle, but the big question was how aggressive they will be with quantitative tightening. What will determine if the FOMC decision was hawkish is if Q/T was closer to $70 billion a month, with a cap around $50 billion being somewhat dovish.
Oil
prices declined after reports that Hungary vetoed the EU’s proposed ban on Russian energy. The growing risk of an embargo on Russian seemed less likely until the EU can secure additional energy supplies for Hungary.
Hungary can’t function without Russian energy and the EU will need to win their support in delivering harder-hitting sanctions against the Kremlin.
Dragging on crude was China’s recent string of softer economic data and new wave of COVID restrictions and outbreaks. COVID cases across Shanghai appeared to be heading in the right direction, but energy markets were hesitant to become optimistic given the uncertainty of how bad the negative impact will be for the crude demand outlook.
Oil prices seemed to have strong support at the $100 a barrel level, but a massive rally seemed unlikely given the return of US production and weakening gasoline demand.
Gold
prices continued to get pummeled as . The gold market can’t stabilize until the bond market selloff showed signs of easing.
Gold could remain in the danger zone if the stock market formed a bottom. The yellow metal wasn’t acting like a safe-haven now, but if stocks stabilized here, the selling pressure for the precious metal could resume.
For gold to become attractive again, Wall Street needed to become confident that the majority of Fed tightening was priced in and not overly bullish with stocks.
Dip buying for equities was emerging, but investors were still doubtful that we will see an all-clear signal anytime soon. If gold continued to slide, the $1835 level should provide tentative support.
Bitcoin
was hovering around major support as investors started to price in much more aggressive Fed tightening. Bitcoin could still see further downside if volatile market trading continued in May.
The $35,000 level should provide major support for the crypto, but if the Fed delivers a major de-risking moment, downside could target the $30,000 region.
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